Starbucks Corporation: Give Your Portfolio a Sugar Rush (SBUX)

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Starbucks Corporation (SBUX): Your secret to tremendous growth has just been blown. It turns out, some of its drinks are loaded with sugar. Put some caffeine into the mix and you have to cross the line to crystal meth to get a bigger jolt.

Starbucks Corporation: Give Your Portfolio a Sugar Rush (SBUX)Starbucks is taking flak because a study revealed that some of its drinks contain a “scandalous” amount of sugar. Heck, some of the company’s beverages contain as much sugar as three cans of Coke, according to U.K.-based Action on Sugar, a non-profit health group.

Seeing as how companies like Coca-Cola (KO) and Pepsi (PEP) have come under fire over the sugar content of their beverages, this isn’t really the greatest thing.

But we’re a long way off from this becoming an issue for Starbucks stock. A day of headlines doesn’t change the fundamentals on this name. The market is in love with Starbucks and SBUX stock for good reason.

Like the broader market, Starbucks stock is off to a poor start in 2016. However, the trends that fueled an incredible bull run dating back to 2014 haven’t just gone away. It also didn’t help Starbucks stock when the coffee chain reported mixed quarterly results last month.

Even with economic slowdown in China and a strong dollar, Starbucks is still printing remarkable same-store sales growth.

Starbucks Stock and Rising Comps

Same-store sales — also known as comparable-store sales — measure sales at stores open more than a year. This strips out the effects of expansion on a retailer’s top line. That’s because anyone can grow total revenue by opening new locations. Whether those locations continue to grow — and leverage their costs — is another matter entirely.

That’s why comp-store sales are such a critical metric for companies like Starbucks. Happily for investors in SBUX, the chain has more than delivered on that count.

In the most recent quarter, Starbucks actually disappointed the Street when it said same-store sales in the China-Asia Pacific segment rose just 6% vs. the 9.6% forecast. True, that’s a pretty big miss, but it’s also the kind of growth that would thrill most retailers.

Besides, global comps rose 8%. That’s quite a feat for any retailer and even more impressive considering SBUX’s size.

The key worry these days is that Starbucks is focused on Asia to drive future growth, but China’s market and economy are in decline. Fine. Let’s just not forget that Starbucks is playing a long game and economies cycle. It’s not like China-Asia has suddenly gone negative. It’s still a fountain of demand. Furthermore, SBUX is more than China.

We’re talking about a company with 8% global same-store sales growth. That means sales AND margins are expanding. This is a story of increasingly profitable growth. What could be better for a stock?

So forget about these distractions. The controversy over sugar or concerns about China don’t change the equation for Starbucks stock. It remains a reasonably valued large-cap stock set to deliver more market-beating returns.

As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.


Article printed from InvestorPlace Media, https://investorplace.com/2016/02/starbucks-stock-sbux-ko-pep/.

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